Consumer product goods companies will face increased pressure to differentiate this year and need to turn to global markets for growth, according to Deloitte’s annual consumer products industry outlook.
Global retail sales of packaged foods are expected to rise to over $3 trillion by 2020, mostly thanks to emerging markets and the rise of the middle class, Deloitte said. Though still a small fraction of CPG sales, online sales are rising and could increase by 350% to $36 billion this year, from $8 billion five years ago; by contrast, brick-and-mortar sales will increase by just 3.6% percent over the same period, Deloitte said.
Innovation will continue to be key, and many consumer product companies are developing incubators and crowdsourcing ventures in that effort, according to the report. Another route is mergers and acquisitions, Deloitte said.
Consumer product innovation is nothing new; after all, "new and improved" is an industry cliché. But the market is under unprecedented pressure on many fronts. For one thing, retailers are drilling down prices — Walmart, Kroger and Target have all announced "price investments" in recent months.
But that vendor hardball isn’t the only challenge brands are facing from the retail side. Big-box retailers and grocers have developed, expanded and improved their own private labels, joining the likes of Costco and Trader Joe’s, which have long offered high quality, popular store brands. Amazon today controls 90% of online battery sales, for example, through its Amazon Basics line.
Private label manufacturing sourcing is up 56% over the same point in January a year ago, according to statistics from the Thomas Index Report. Increasingly, consumers are also turning to private label goods that aren't so heavily marketed. Trader Joe’s is almost entirely a private-label enterprise, and more consumers seem to appreciate an opportunity to avoid what is increasingly thought of as "the brand tax" — higher prices on name brands that don’t necessarily reflect added quality or value — by sticking to the no-name names like Costco's Kirkland or Amazon's many private labels.
E-commerce upstart Brandless is the latest company to try to exploit this attitude, with items from soap to kitchen essentials selling for $3 apiece. "We’ve been trained to believe these markups increase the quality of the product, but they rarely do," according to a blog on Brandless' website. "And those markups seriously add up. In fact, you pay an average of 40% more to have a big-name brand on the label."
One solution for CPG companies — selling directly to consumers — presents a problem for retail partners. "Many CPG companies continue to debate the benefits of selling directly to consumers versus partnering with e-retailers," Deloitte said. E-commerce retailers (in particular Amazon, of course aided by voice assistant Alexa) control the relationship with the consumer and accrue the benefits of data collection, including cross-selling and upselling.